Question: Six years ago Graham Inc an accrual basis corporation sold
Six years ago, Graham Inc., an accrual basis corporation, sold investment land (basis $562,250) to Jervil LLC and accepted Jervil’s note for the entire $865,000 sale price. The land was the collateral for the note, and Graham used the installment sale method of reporting its taxable gain on sale. This year, Jervil defaulted on the note, and Graham repossessed the land. At the date of repossession, the principal of the note was $644,000. Graham also had $40,800 accrued interest receivable on the note. How much gain must Graham recognize on repossession, and what is its new tax basis in the repossessed land?
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